The Golden State is now the Bankruptcy State. In late July and early August, California suffered a cluster of bankruptcies in three cities: Stockton, San Bernardino, and Mammoth Lakes. In 2008, Vallejo declared bankruptcy.
Since 2010, 26 municipalities in the United States have filed for bankruptcy. The most notable, Central Falls, Rhode Island (August 2011), led sensible Democrats in the state to reform pensions. Jackson County, Alabama (November 2011), was the largest municipal bankruptcy in U.S. history. And Harrisburg, Pennsylvania (March 2012), is a state capital where one would assume plentiful tax money would be available.
The ongoing Great Recession has been tough in most places. And given California’s position as a trend setter, from surf music to illegal immigration, the rest of the country will likely follow the bankruptcy trend in a few years.
California’s bankruptcies are different because of long-standing problems and the refusal of state authorities to deal with them. Alexander Rubalcava, president of Rubalcava Capital Management, an investment advisory firm in Los Angeles, has been warning about California’s kamikaze finances since 2006. “There will be dozens or hundreds of municipalities in California filing Chapter 9 in the decades to come,” he recently claimed. The Bankruptcy...